FED Publishes Results of the 2019 Stress Tests for Banks
FED published a report presenting results of the Dodd-Frank Act Stress Test (DFAST) exercise for 2019. The results of this year’s stress test cycle show that all 18 banks subject to the supervisory stress test exceeded the required minimum capital and leverage ratios under the severely adverse stress scenario. However, in the aggregate, the 18 firms would experience substantial losses under both the adverse and severely adverse scenarios. Nevertheless, these firms could continue lending to businesses and households, due to the substantial build of capital since the financial crisis.
Only the largest and most complex banks were tested this year. As previously announced, smaller and less complex banks were not tested this year and are on a two-year cycle, consistent with the Economic Growth, Regulatory Relief, and Consumer Protection (EGRRCP) Act. The report on the 2019 DFAST results provides:
- Details of the adverse and severely adverse supervisory scenarios used in DFAST 2019
- An overview of the analytical framework and methods used to generate FED’s projected results, highlighting notable changes from last year’s program
- Information about recent efforts to increase transparency
- Additional details about FED’s assumptions in the supervisory stress test
- Results of the supervisory stress test under adverse and severely adverse scenarios for the firms that participated in DFAST 2019, presented both for individual institutions and in aggregate
The results confirm that the largest and most complex banks have strong capital levels that would allow them to stay well above the minimum requirements, after being tested against the severe hypothetical recession. In the severely adverse scenario, losses are projected to be USD 410 billion. The aggregate common equity tier 1 capital ratio would fall from an actual 12.3% in the fourth quarter of 2018 to its minimum of 9.2%, before rising to 9.7% at the end of nine quarters. Loan losses in this year's stress test are broadly comparable to those from past years. Credit card loans showed the highest losses, followed by commercial and industrial loans.
The DFAST cycle begins in the first quarter of 2019 and ends in the first quarter of 2021. The firms tested this year represent about 70% of the assets of all banks operating in the U.S. Results of the Comprehensive Capital Analysis and Review, or CCAR, will be released on June 27, 2019.
Related Links
Keywords: Americas, US, Banking, Stress Testing, Dodd-Frank Act, Stress Test Results, DFAST, CCAR, Basel III, EGRRCP Act, FED
Featured Experts
James Partridge
Credit analytics expert helping clients understand, develop, and implement credit models for origination, monitoring, and regulatory reporting.
Laurent Birade
Advises U.S. and Canadian financial institutions on risk and finance integration, CCAR/DFAST stress testing, IFRS9 and CECL credit loss reserving, and credit risk practices.
María Cañamero
Skilled market researcher; growth strategist; successful go-to-market campaign developer
Previous Article
EBA Single Rulebook Q&A: Third Update for June 2019Related Articles
MAS Concludes Blockchain Payments Prototype Shows Commercial Potential
MAS and Temasek jointly released a report to mark the successful conclusion of the fifth and final phase of Project Ubin, which focused on building a blockchain-based multi-currency payments network prototype.
PRA Publishes Public Working Draft of XBRL Taxonomy 1.2.0 for Insurers
PRA published a public working draft, or PWD, of version 1.2.0 of the BoE Insurance XBRL taxonomy, along with the related technical artefacts.
CPMI Report Sets Out Building Blocks to Enhance Cross-Border Payments
CPMI published a report that sets out nineteen building blocks for a global roadmap to improve cross-border payments.
EBA Publishes Phase 2 of Technical Package on Reporting Framework 2.10
EBA published phase 2 of the technical package on the reporting framework 2.10, providing the technical tools and specifications for implementation of EBA reporting requirements.
APRA Updates Reporting Validation Rules in July 2020
APRA updated the lists of the Direct to APRA (D2A) validation rules for authorized deposit-taking institutions, insurers, and superannuation entities.
PRA to Partly Apply EBA Guidelines on Disclosures for COVID Measures
PRA updated the statement that provides guidance to regulated firms on implementation of the EBA guidelines on reporting and disclosure of exposures subject to measures applied in response to the COVID-19 crisis.
EBA Updates List of Correlated Currencies Under CRR
EBA updated the 2019 list of closely correlated currencies that was originally published in December 2013.
ESMA Guides on Securitization Repository Data Consistency Thresholds
ESMA published the final report on the guidelines on securitization repository data completeness and consistency thresholds.
FASB Proposes to Delay Implementation of Insurance Contracts Standard
FASB issued a proposed Accounting Standards Update that would grant insurance companies, adversely affected by the COVID-19 pandemic, an additional year to implement the Accounting Standards Update No. 2018-12 on targeted improvements to accounting for long-duration insurance contracts, or LDTI (Topic 944).
APRA Updates Regulatory Approach to Loan Deferrals Amid COVID Crisis
APRA updated the regulatory approach for loans subject to repayment deferrals amid the COVID-19 crisis.
